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    US Admission of Defeat on Nord Stream 2 Was 'Economically Inevitable' - Analyst

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    Donald Trump has made fresh remarks about Russian-German energy ties, saying that while such cooperation was "inappropriate" and a "very bad thing for the people of Germany," the US would not deploy sanctions measures against it. Economic observer Dmitry Lekuh explains why Washington's decision to fold on the issue was a calculated one.

    Speaking to reporters in the White House ahead of his meeting with Polish President Andrzej Duda this week, Trump reiterated his disapproval of Nord Stream 2, saying he was never a fan of Russian-German energy cooperation.

    "I never thought it was appropriate. I think it's ridiculous. And I think it's certainly a very bad thing for the people of Germany. And I've said it very loud and clear," the US President said. 

    However, when asked whether Washington was prepared to introduce sanctions against Western European energy concerns that are working with Russia on the Nord Stream 2 deal, Trump made a statement which quickly made its rounds in the business world: "We're not looking to do that," he said.

    President Donald Trump, right, listens as Polish President Andrzej Duda, left, speaks during a joint news conference in the East Room of the White House in Washington, Tuesday, Sept. 18, 2018
    © AP Photo / Susan Walsh
    President Donald Trump, right, listens as Polish President Andrzej Duda, left, speaks during a joint news conference in the East Room of the White House in Washington, Tuesday, Sept. 18, 2018

    Later, in the joint press conference after their meeting, President Duda chimed in on Nord Stream 2. While stressing that the pipeline project was "without any doubt…the biggest threat right now" to European "energy stability," Duda admitted that "unfortunately, we have to be clear and say that, both from the German side and from the Russian side, this construction has already been started." 

    All that remained, Duda added, was "some formalities going on connected with the laying of the pipes at the bottom of the Baltic Sea."

    "There is a threat of Russian energy domination, especially when Russia mentions that it's going to build more pipelines – Nord Stream 3, Nord Stream 4," the Polish President warned, adding that Poland, for its part, was willing to "go to any lengths to protect ourselves," including with the construction of an LNG terminal and the purchase of US gas, as well as expanded Polish-US projects on coal production.

    Frank Remarks

    According to Sputnik energy economics observer Dmitry Lekuh, Trump's remarks were remarkable in their frankness, i.e. that Washington doesn't like how Germany is spending its money. Even the idea that some Germans may not like the pipeline project has merit, Lekuh wrote, noting that this includes powerful interests in German politics, lobbyists, the media, etc. who are "affiliated with the structures of the so-called Atlantic solidarity, including, incidentally, Chancellor Angela Merkel."

    "There's also truth in the idea that Germany doesn't want to spend 'billions of dollars' (although it's unlikely that President Trump himself realized how close to the heart of the issue he had come)," the analyst added. "It's precisely because of the Germans' unwillingness to pay in dollars that European Commission chief Jean-Claude Juncker proposed transferring at least part of Europe's [energy] payments to euros. And Russia, to the chagrin of its own dollar lobbyists, apparently won't be able to refuse this request by Germany or Europe as a whole."

    In this photo provided by German government U.S. President Donald Trump, center, talks to Russian President Vladimir Putin and European Commission President Jean-Claude Juncker, left, before the first working session of the G-20 summit in Hamburg, northern Germany.
    © AP Photo / Steffen Kugler
    In this photo provided by German government U.S. President Donald Trump, center, talks to Russian President Vladimir Putin and European Commission President Jean-Claude Juncker, left, before the first working session of the G-20 summit in Hamburg, northern Germany.

    As for Trump's remarks that the US would not slap European energy companies with sanctions for their cooperation with Russia, this was the least surprising part of his comments, Lekuh argued.

    'Mathematical Explanation'

    In economic terms, the observer stressed, Russian gas for Europe, and specifically its northwestern industrial cluster, is simply indispensable:

    "The output of a regional economic cluster can be competitive in global markets only given the presence of a relatively cheap energy source. Who supplies this cheap energy, to whom the energy belongs…is secondary. Along many parameters, apart of course from world-famous German quality, Europe's industrial output its losing its competitiveness rather severely both to China and the US. In those countries, industry faces less taxation and fewer social obligations, enjoys a cheaper labor market, and lower social costs."

    Chinese workers assemble electronic components at the Taiwanese technology giant Foxconn's factory in Shenzhen, in the southern Guangzhou province (File)
    © AFP 2018 /
    Chinese workers assemble electronic components at the Taiwanese technology giant Foxconn's factory in Shenzhen, in the southern Guangzhou province (File)

    Accordingly, Lekuh noted, European industry can compete on global markets only based on its reputation for quality and high energy/output ratio, but the latter only given low energy costs. This is especially true with the rise of energy-intensive industrial equipment, such as industrial robots. Furthermore, whether politicians like it or not, low cost energy inputs cannot be achieved with LNG shipped in from abroad, but only pipelines. 

    This reality, the analyst noted, is complemented by other factors, such as the new Russian supplies from the Arctic via the Yamal Mega Project, a gigantic 32-field resource with 2 trillion cubic meters-worth of reserves which is soon expected to produce and deliver up to 360 billion cubic meters of gas per year.

    Robots weld a car body at the plant of the German car manufacturer Volkswagen Sachsen in Germany, Monday, Jan. 26, 2015
    © AP Photo / Jens Meyer
    Robots weld a car body at the plant of the German car manufacturer Volkswagen Sachsen in Germany, Monday, Jan. 26, 2015

    Ultimately, Lekuh emphasized, even if German, Danish or Swedish politicians opposed to Russian pipeline gas somehow succeeded in blocking Nord Stream 2, Gazprom could just build a Baltic LNG terminal outside St. Petersburg and sell this gas for less than US LNG. Or the company could simply shift its supply east, cutting into the US's all-important LNG market in China and the rest of Asia.

    In other words, Lekuh wrote, "American business is convinced, given present conditions, that blocking Nord Stream 2 does not make much sense, not only in terms of costs, but in terms of desirability. For this reason, neither Gazprom, nor Nord Stream 2 AG, nor Germany nor Austria showed any concern" about Nord Stream 2's viability. "Accordingly, if the news about Washington's unwillingness to lock horns with the Russian pipeline was a sensation for anyone, it was only for the Poles and other Eastern Europeans, who, as always, didn't get the memo," the observer concluded.

    Dmitry Lekuh is an economic analyst specializing in global energy markets and energy infrastructure. The views expressed by the journalist are his own, and do not necessarily reflect those of Sputnik.

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    Tags:
    Nord Stream 2, expert analysis, energy cooperation, gas, energy, Nord Stream AG, Andrzej Duda, Donald Trump, Germany, Europe, Poland, United States, Russia
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